ATLANTA -- Mississippi's Bond Commission on Tuesday rejected Gov. Kirk Fordice's attempt to block the issuance of $2 million in taxable state general obligation debt to fund surety bonds for minority contractors.
Fordice, one of three members of the commission, argued that the proposed GO issue would violate guidelines laid down in a 1989 U.S. Supreme Court decision, according to Greg Hinkebeim, the governor's legal counsel.
In the case cited by Fordice, Richmond v. J.A. Croson Co., the high court ruled that Richmond, Va., had erred in passing a law requiting a set percentage of construction contracts to be awarded to minority businesses without a strict showing of racial discrimination.
"The governor felt we shouldn't continue to develop a program where there isn't an assurance that it will cure demonstrated prior demonstration, and that it wouldn't be challenged in court," Hinkebeim said yesterday.
Despite Fordice's objections, however, the proposed taxable bond issue was approved on a two-to-one vote, as the two other members of the commission, state Treasurer Marshall Bennett and Attorney General Mike Moore, voted to authorize its sale.
According to Bennett, the balloting followed a legal presentation by Moore in which the attorney general argued that the GOs would not create an illegal minority set-aside.
The GO-funded program will help give minority-owned firms access to surety bonds, a form of insurance that contractors must buy to participate in construction projects. Minority-owned builders in Mississippi have claimed that the high cost and difficulty of qualifying for these instruments have effectively barred them from working on many projects in the state.
Bennett said in an interview that the program establishes a method to help minority-owned businesses, which "historically have not had the chance to participate in the construction business, partly because of the difficulty of obtaining" surety bonds.
"The program has been approved by the state legislature and the state's department of economic and community development," he said. "I do not think it's unconstitutional."
Despite the governor's vote against the bond issue, Hinkebeim said Fordice would not seek to detail its issuance. "We will not challenge the bond issue, and we have absolutely no intention of hurting any holder," he said.
Moore, the attorney general, was unavailable for comment yesterday.
The bonds are being sold on a taxable basis, said state officials, because of Internal Revenue Service regulations that generally disallow the taxexemption when more than 10% of proceeds are used for private purposes.
Proceeds from the issue will be used to buy reinsurance for surety bonds to be made available to minority-owned building contractors, according to Mary Keen, director of Mississippi's state bond advisory division. These surety bonds would be limited to projects undertaken by the state or local governments in Mississippi, she said.
The program was authorized by the state's Farm Reform Act of 1993, said Bill Barry, director of financial resources, for Mississippi's department of economic and community development, which oversees the program.
Barry said that program details have not yet been completed. but will probably be finalized in November by the Mississippi Business Finance Corp., a nonprofit agency set Up by the development department to administer its program.
Issuance date for the $2 million issue has not yet been set, but it will probably be added to $32.3 million of GO debt that the state's Major Economic Impact Authority hopes to sell within the next month, according to Keen.
At the commission's meeting on Tuesday, it approved sending out requests for 20 proposals from bond counsel for the offering, which will fund a total of seven projects to help the state deal with the downsizing of military facilities, she said.
She said that once bond counsel decide which issues can be sold on a taxexempt basis, it will move forward with a combined sale, or, said Keen, the $2 million bond issue could be sold by itself.
At this week's meeting, the commission also approved, as expected, issuance on Nov. 16 of $75 million of tax-exempt general obligation debt for a variety of building projects.